Your Right to Know

As the House continues debate over a new severance tax on fracking in Ohio, it remains uncertain
whether lawmakers will get an official revenue estimate from its nonpartisan research arm.

The Ohio Oil and Gas Association estimated how much the new severance tax would collect over the
next decade if House Bill 375 is enacted. The association also played a role in writing the bill,
after GOP lawmakers twice rejected heftier drilling-tax proposals from Gov. John Kasich.

The Legislative Service Commission, which researches and analyzes proposed legislation, also
issued a fiscal impact statement. While it outlined how the bill’s tax cuts would cost the general
revenue fund more than $10 million next year and tens of millions annually in the future, it did
not project new tax revenue.

Some lawmakers on the House committee hearing the bill were concerned that they were working
without an official, nonpartisan revenue estimate. The Ohio Oil and Gas Association estimated that
the state’s net revenue from the tax would nearly double compared to the current tax, to $2.07
billion over 10 years.

Money would go for drilling oversight, capping of orphan wells and a minor annual income-tax
cut.

Wendy Zahn, deputy director of budget and fiscal analysis for the Service Commission, said the
office continues to research a revenue projection but may not be able to gather enough information
to develop one.

“How many wells are they going to drill? That’s a pretty difficult question to know for sure,”
Zahn said.

The commission will continue to look to experts and other sources of information to try to
develop an estimate, Zahn said. She said her analysts also are looking at the industry
estimate.

“An industry can throw out a number and take it back,” she said. “Once we put out a number, it’s
very difficult to take back.”

The bill will get another hearing Wednesday, when opponents are expected to testify and
potentially question whether the tax plan is big enough.

While Ohio oil drillers support the proposal, the American Petroleum Institute-Ohio, which
represents a variety of major fracking companies across the country, remains neutral.

“There are changes that can be made to make it simpler to administer. This is a complex issue,”
said Chris Zeigler, executive director of the institute, which was not involved in drafting the
bill.

While the bill’s commercial activities tax reduction, new income tax credit and severance tax
cut for traditional wells would benefit longstanding in-state drillers, it would not affect
Petroleum Institute members, Zeigler said.

He called the bill’s proposed tax rate “workable,” but said it needs more clarity.